The Shanghai Headquarters Building of the People’s Bank of China.
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The People’s Bank of China on Wednesday extended the maturity of medium-term policy loans for the fourth consecutive month, while keeping interest rates unchanged, in line with market expectations, while increasing liquidity injections.
The higher injection shows authorities are keen to provide sufficient long-term funding for markets, while Beijing’s modest economic growth target for this year suggests policymakers are comfortable with the pace of the recovery from the current slump in Covid-19 activity.
Investors see the chances of large-scale monetary easing as low as the economy is fully recovering after Beijing exited a strict zero-Covid strategy late last year.
The People’s Bank of China said it would keep the interest rate on its 481 billion yuan ($70.03 billion) one-year medium-term lending facility offered to some financial institutions at 2.75%, unchanged from its previous operation.
All participants in a Reuters poll of 28 market watchers this week expected the MLF rate to remain unchanged, with 20 predicting fund issuances would exceed their maturity dates.
200 billion yuan of MLF loans will mature this month, injecting a net new capital of 281 billion yuan into the banking system.
The central bank said in an online statement that Wednesday’s lending operations aimed to “maintain reasonably sufficient liquidity in the banking system” to fully meet the cash needs of financial institutions.
Xing Zhaopeng, senior China strategist at ANZ, said higher cash infusions would “relieve liquidity pressure”.
“Nearly 500 billion yuan in fund issuance shows that the possibility of lowering the reserve requirement ratio (RRR) in the short term is not high,” Xing said, predicting that market interest rates may climb.
Xing added that China’s modest economic growth target for this year also suggests that further monetary easing is unlikely.
China set an economic growth target of around 5% for this year at the annual meeting of the National People’s Congress. That target was at the lower end of expectations, as policy sources recently told Reuters a range as high as 6 percent could be set. It was also below last year’s target of about 5.5%.
The central bank also injected 104 billion yuan through seven-day reverse repos, while keeping borrowing costs unchanged at 2.00%, the central bank said in an online statement.